We are, according to Google?s CEO, in an unchartered territory. Consumers are buying less, clicking less on advertisements, and advertisers are demanding more bang for their buck. While search volumes for companies like Google have gone up, this doesn?t necessarily mean that business is growing at the same rate. Google reported a gross revenues growth of 6 percent, helped, not for the first time, by strong international revenues. With gross revenues down 18% as compared to the first quarter last year, Yahoo is experiencing pressure on both search advertising, which was down 3 percent, and display advertising, down 13 percent. Microsoft too felt the pressure, with a fall in display advertising bringing down the companys online advertising revenue by 16 percent to $521 million. At the same time, search queries and page views increased for the company.

The broad consumer trends in the Internet space are not unexpected: given the economic slowdown, consumers are being choosier, and are searching more for information on what they are buying. This means that they?re more likely to search for opinions and feedback on products, since they want to be more careful about where they spend their money, and they also scout for better bargains. This has heralded two distinct trends: firstly, a decline in display advertising, and a move from display from brand building to performance-based advertising. With a focus on maintaining cashflows and meeting short-term revenue targets, advertisers are moving towards advertising that is more accountable?which is ratified by a consumer click on an advertisement, for which advertisers pay a cost per click; filling a form?for which advertisers pay a cost per lead; and a percentage of a sale?wherein the advertiser pays only on completion of a sale. As we move from a cost per click model to a cost per acquisition model, the likelihood of a conversion declines, while with display, companies pay for eyeballs?by the thousand ?impressions? on a web page. A switch from display to a performance-based model has contributed significantly to the decline in display advertising. Microsoft has suggested that there was a significant decline in display advertising rates across the industry.

The second key trend compounding the issue is the lower propensity to purchase: Yahoo reported lower revenue per search, due to a lower tendency to click on advertisements. Since it has become tougher for advertisers to convert potential website visits into leads or sales and they are getting a lower return on their investment in advertising, the amount which they are willing to pay for a click, or indeed bid for a click, has also declined. Google operates on a cost per click (CPC) model.

Financial services had been a key advertiser in the Internet space, and a global decline in the sector has hit the medium hard?revenues from companies offering credit cards and loans declined, as did the automobile sector, travel and retail business. For Yahoo, spends from consumer products, tech, entertainment and telecom were strong; in a bid to gain marketshare, telecom players are increasing spending, and Yahoo reported higher telecom revenues for the quarter.

Companies in the Internet space are viewing this period of marginal downturn (for them, at least) as transitional?the Internet is being seen as the medium which delivers more for both advertisers and consumers, and the expectation is that when the upturn begins, consumers will continue to display a propensity to use the medium for making better purchase decisions, and advertisers will increase spending, and yet stick to the Internet, expecting more accountability for their spends, and better returns on their investment. At the same time, it?s not as if brand building and display advertising is dead. As Yahoo CEO Carol Bartz put it: ?You have to have control of what your company stands for. All the companies who are under siege because of negative attention will need to rebrand to build consumer trust, and they will want to associate with brands like ours. Brand advertisng will grow with economic recovery.?

The author is editor of telecom and digital media analysis site MediaNama.com. He can be reached at: nikhil@medianama.com